Of course they make money but not very much on the average person's free account. They are a business and operate within the law which is really the end of it. They don't have to be nice.
The most sensible model for an ethical bank in theory is not to offer free account, charge every customer a set fee annually for their account. Then don't invest (much) of their money. But how many people here would actually swallow paying, say, £25 a month for a bank account? Really?
So that's why we are where we are, people would like a nice ethical, morally upright system but aren't prepared to pay for it. As per usual.
I couldn't agree more with these points.
However, advertising certainly shows us a 'Understanding, World-friendly' face of the bank. As is splashed on the front page of every daily newspaper, the reality is far far different.